Economic Clouds Linger But Green Skies Ahead?

Economic Clouds Linger But Green Skies Ahead?

The economy is still suffering greatly, but aspects of the contract furniture market are showing glimpses of hope. By John Parkinson



"It was the best of times it was the worst of times."
Charles Dickens


This famous literary opening may very well explain the ambivalence of today's commercial furniture market. The economy is still suffering greatly, but aspects of the contract furniture market are showing glimpses of hope.

Furniture design elements continue to impress with flair, but include a practicality with adaptable office applications. And in a continuing development, the industry is designing furniture with green elements.

The contract furniture market can serve as a microcosm for U.S. industry as a whole. The delay of positive economic indicators, coupled with job losses and budgetary issues, mirrors the problems faced by numerous U.S. businesses.

Economic Indicators

A few, very significant uncertainties are impacting the economy and, in turn, the furniture industry. First, the contract furniture market has been hit hard by the increase of vacant office space. According to international real estate company Cushman & Wakefield, in the spring of 2001, building office vacancy rates were at 7%. This spring, the vacancy rate are up to 15%.

Nowhere has this been felt more than in the IT market. The downturn of the IT market has fueled the rise of available office space, especially in cities with a large high tech sector. IT companies were buying large quantities of new office furniture just a few years ago, and today, many tech companies struggle to stay afloat.

In a TFM interview that appeared in the March 2003 issue, Sheila Sheridan, director of facilities and services of the John F. Kennedy School of Government at Harvard University talked about her hometown's particular IT downturn and the impact it has made on the furnishings' inventory issue. "In Boston, with our high tech firms, a glut of used furniture is appearing on the market because companies have walked out of their rental spaces and just left furniture behind," explained Sheridan. "It's going to be a real challenge for the furniture industry in certain sections of the country and the world."

While this has had a negative influence on the contract furniture industry, it has presented an advantageous position for facility managers in the market for refurbished furnishings. More office space speaks to a trend behind the trend: unemployment. "Why do you buy office furniture?" asks Dr. David Wyss, chief economist, Standard & Poor's. "You buy office furniture because you have an employee who needs a desk and a chair. If you don't have any more employees, you don't need any more office space."

Another negative indicator is the stock market. It has been in the doldrums for too many months to recount, and has killed company and shareholder dividends. With less revenue or the perception of having less, manufacturers might be less inclined to spend money on new initiatives. "I think it's going to look a lot like the post 1960s period, where the market basically stalled and went sideways," foresees Wyss. "The market is fairly valued at this level of interest rates, but interest rates are going to be going up; and as they go up, that is a negative for the stock market."

While bad economic indicators continue to remain in place, positive economic indicators are either slow in coming or in a legislative limbo that keeps from setting into place a financial turnaround. For example, The World Trade Organization may alleviate costs for manufacturers in the way of tariffs. The WTO has recently decided to repeal the U.S. tariff on imported steel. If this goes into effect, companies importing steel will pay less for the raw material. However, this won't happen overnight.

"While we are encouraged by the news of the decision contained in the WTO's preliminary report, we realize that there are still many hurdles to cross before there is any definite resolution to this issue," states Tom Reardon executive director, the Business and Institutional Furniture Manufacturer's Association. The repeal of this tariff could possibly steady furniture costs for end users.

Another potentially positive indicator on the horizon is the Bush administration's tax cut. However, the measure is having a hard time getting through Congress. The current version of this legislation will allow companies to keep some of their revenues and reinvest or allow for spending.

Design

As bad economic factors continue to dominate the marketplace, they are creating challenges to both facility managers and furniture designers. Faced with increasing budget cuts, companies are not only downsizing their personnel, but they are doing the same with their properties.

"Everyone seems to be under tremendous pressure from a budget standpoint, and squeezing more people onto a floor looks to be the first option," explains Randy Iles, vice president and general manager, of Jasper, IN-based Kimball Office.

Facility managers are having to put people in smaller spaces, so the ability to have adaptable furniture to work in more confined office areas is essential. In light of this, Kimball is releasing a systems product called Xsite. Used for office cubicle configurations, Xsite can subdivide modules in 3" increments. "We've tried to provide flexible solutions in a more constrained environment," adds Iles.

Conversely, Grand Rapids, MI-based Steelcase takes a different tact with how limited workspace will be utilized. "We really believe the cube is dead, "explains James Ludwig, director of design, Steelcase. Ludwig is communicating the company's assessment that the traditional cubicle workspace is going out and will be replaced with an open space environment. Steelcase is making products that endorse this belief.

However, the furniture manufacturing conglomerate supports the belief that adaptability is a significant feature for end users. "Mobility and flexibility tend to happen in a couple of ways," Ludwig offers. "Often a glide is enough for me to pull something within my workspace towards myself in an ergonomic way so it fits me better; or I may take my desk and wheel across the studio to another person's desk, push them together, and we have a quick, collaborative sort of micro environment."

Green Furniture

Another area of the furniture market that is warranting attention is the development of sustainably designed furnishings. Although there are several public and private groups, associations, and government agencies involved, no single governing body oversees the overall formation or qualification of what is considered green or sustainably designed furniture.

Government agencies involved in either a hands on approach or a peripheral relationship regarding environmentally safe furniture include the Federal Trade Commission, Environmental Protection Agency, and Department of Energy. In spite of the potential for ambiguity, the overall consensus in the industry is that the status quo for this issue is working fine.

"The reality is while you can regulate, there are always loopholes, and there are always changes," states Kirsten Ritchie, director of environmental claims certification, Scientific Certification Systems. SCS is in the business of certifying the green attributes of products.

However, without the federal government as an overseer, the door is open for those with suspicious motives to make fictitious or frivolous claims. As a result, facility executives must search various resources in order to verify the legitimacy of green promises. "[Regulation] is a losing battle. It's important to find other incentives to encourage people and companies to learn by their own experience and recognize it is to their own benefit and to the value of their own company to move toward greener production processes," explains Ritchie.

Although there are different motivations for manufacturers to develop sustainable furniture, more manufacturers are slowly adding green elements to their products, and are getting certifications in the process. Some are looking for a specific market share, while others see a combination of altruism and capitalism working together. Finally, there are those who don't want to end up on a future list that states their products or components of their products are unsafe. "We want to make sure that everything we are manufacturing isn't the next asbestos," states Ludwig.

Regardless of the motivation, there has to be some benefit to the individual manufacturer. "Anything you do must provide a return on investment," says Reardon. "That return could be in the form of increased business, goodwill, and/or profit."

For facility managers, there is no formal pressure to buy such products, but the message of responsible purchasing is one they will hear more frequently. Consequently, they will continue to see more varied and appropriate sustainable products in the marketplace. With all that is going on in the furniture market, facility managers should take advantage of those cues that will work in their favor. With more furniture available, bargains for those shopping can be found.

Adaptable, flexible furniture will continue to expand regardless of individual workspace demands. This can help facility managers acquire added value and help justify costs to management. Lastly, the introduction of more green furnishings into the market should be expected, but facility managers should be cognizant of the fine print on individual claims on products.

As with every American industry in these bad economic times, furniture manufacturers are struggling; however, they can rebound and lead the facility managers to sustainable office environments if they choose to see the green writing on the wall.

----
This article has been reprinted courtesy of Today’s Facility Manager. It was first published in May 2003.